If you continue to have a problem with the fact that we are now pursuing a counterinsurgency campaign in Afghanistan, by the way, you should spend less time whining about the generals and think tank researchers and take the issue up with the president. As the secretary of state said today at USIP, while holding forth on the strategy reviews that took place in the spring and fall, “the president reached a conclusion [after the reviews of 2009] that should be respected by Americans.”

Obviously it’s a bit of stretch for Exum to throw all the blame on the politicians, seeing as how he and a host of other COINdinistas built their Beltway careers on aggressively proselytizing counterinsurgency religion to those very same politicians. But our leaders are primarily responsible for the policy failure. For instance, Afghan president Karzai visits Washington with a peace plan, and we just take it as normal that he has to “persuade a sceptical Barack Obama that it is time to negotiate with the Taliban.” Skeptical about negotiating? Obama has a Nobel Peace Prize, and he’s skeptical? And Exum’s quote from Secretary Clinton is equally outrageous. We’ve so completely lost sight of our peaceful capabilities, so misunderstood the point of our civilian foreign policy agencies, that even our diplomats demand our military occupations be “respected.” Our problem is not picking the right military strategy, but picking any military strategy at all. Continue reading “Rethink Afghanistan: Clinging to guns and counterinsurgency”→

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California somehow has to fill a gaping $19 billion hole in the upcoming June budget. Doing so will be difficult, especially given that previous budgets have already grabbed money from wherever it could, leaving the choices for this year even more difficult. Today, Gov. Schwarzenegger detailed the brutal cuts coming, saying the state doesn’t have the money, and that the current system is broken and must be repaired. Further, he said he will not sign a budget that does not contain substantial pension, budget, and tax reform. He singled out CalPERS, the public pension system, as needing reform. By law, CalPERS can force the state to make up any shortfall, and for the coming fiscal year, that will amount to almost $7 billion.

Among the cuts Schwarzenegger proposes is to completely eliminate (not just cut back) welfare, cutting pay for state workers even further (many already have furlough days, which essentially are pay cuts), eliminating subsidized child care for all children but pre-schoolers , cut in-home care for the elderly and disabled, and more. He does not favor tax increases, preferring to try to stimulate job growth instead. Given the current dysfunctional system where tax increases must pass by a two-thirds majority, he probably couldn’t get them passed even if he wanted to.

How bad is California’s financial situation? Well, as of May 11, 2010, California was in the top ten for highest government default probabilities in the world, just below Latvia and ahead of Sicily, and had a 20% probability of defaulting. The spread on California Credit Default Swaps (CDS) was at 254, which is going into Red Alert territory. CDS are a form of semi-insurance used by deep pocket speculators and hedgers to essentially make bets on the probability of an entity defaulting. The higher the spread, the more the implied risk is. These spreads can influence interest rates for bonds, so this is not theoretical at all.

Let me explain. Wikipedia gives an example of Risky Corp. having a spread of 50, implying this is high. Yet the California spread of 254 means someone buying $10 million of default protection on California debt for five years would have to pay $254,000 in premiums each year to the seller. With non-risky debt, this might be just $25,000 a year.

So, if things are so dire, then California should just default, file for bankruptcy, and let the courts sort it out, right? Wrong. Under federal law, states are not allowed to file for bankruptcy. We are in uncharted waters here.

So, what happens when California defaults? Maybe it could be an orderly process like an actual bankruptcy, but absent any laws, it would probably be chaos and contentious. The last time any state defaulted was in the 1840’s, so that’s hardly any guide. Plus, California is so huge that a default would be very public and probably a serious shock to the markets as well and could trigger other state defaults, like in New York and Illinois.

The California Budget Project has a wealth of information in their Searching For Balance report (PDF) on the upcoming 2010-2011 budget that helps explain where California income, expenses, and the shortfall come from. Here’s some highlights (number are rounded)

Income: Personal income tax accounts for 52% of total revenue, sales and use tax is 28%, corporation tax just 11%. In fact, the share of corporate income paid in taxes has fallen by nearly half since 1981.

The California budget assumes $6.9 billion in federal funds. If the entire amount is not received then an all-or-nothing trigger will force several billion in further cuts. So far, the federal government has only guaranteed about $3 billion.

The governor said today, “California has no low-hanging fruit left.” All the easy budget cuts, and many hard ones, have already been made. What’s coming will be Draconian. Hopefully, badly needed reform will emerge out of the coming difficult times for California.

Raser Technologies in Provo, UT is pioneering using low-temperature geothermal energy to create electricity. Their systems pump hot water, 165 degrees and up, from underground through heat exchangers to boil another fluid at even lower temperatures. That steam is used to run turbines to produce energy. A big advantage of geothermal power over other types of renewable energy is that it is completely steady. Unlike solar and wind, the hot water is always there and can be used to create energy 24/7.

Raser systems are closed, another big advantage. The fluids that come out of the ground go back in the ground, and there are no emissions. Their first plant, Thermo No. 1 has a 20 year agreement to sell power to Anaheim, California, enough to power 11,000 homes. Other such long term deals are also in the works.

Founded by early Novell investor Kraig Higginson, Raser originally produced motors for electric vehicles. He decided they could be used for geothermal too and they have created an innovative system using modular units to build new plants quickly. Plus, they currently own rights on 250,000 acres to create geothermal power, a vast untapped resource.

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Police opened fire with live ammo on mostly poor protesters who have been occupying an upscale shopping center for days. The government was concerned that some police and military might be sympathetic to protesters. so it’s clear the protests are having an effect.

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The euro is now less in comparison to the dollar than before the rescue and even Volcker is questioning if it can survive.

Seems to me it was just an attempt to (big surprise here) bail out big eurozone banks with have massive exposure to Greek debt rather than any effort to solve root problems or help Greece. As with here, you have banksters working in collusion with governments to buy the garbage debt of the banks. But it’s not working.